Gloria, at robchipman.net, on 16 Nov 2009, 9:27 am, discovers that Vancouver RE price to rent ratios make no sense. The unit that she describes has a price:rent ratio of 390, and that’s before any talk of maintenance fees (which would put the ratio well above 400). These ratios would imply that, from a historical perspective, the sales price is over twice what it should be.
“Luxurious ‘O2′ on Davie / Denman St. has several units for sale, and one of them (2bdr/2bthr, 975 sq.ft) is both for sale and for rent. The sale price is 975k, and the rent is $2500 per month. I just don’t get it… why the rent is so low, or why the sale price is so high?”
Well, the thing is there is no way I could ever afford to buy a property like this one, yet, I can afford to pay the rent! The location is perfect, the unit is brand new, with parking and storage, and pet friendly. I would not have to worry about maintenance fees, or anything other than paying rent and utilities. For mortgage payment of $2500 per month with maintenance fees I can’t buy 2bdr/2bthr in West End, even with variable rates of 2.15.
It’s pretty crazy how inconsistent some price to rent ratios are. I saw a place a few months ago (when i was looking) with a rent of 1500 and a price of 325K. My first question was “why is the rent so high?”
There were plenty of simmilar places for rent for less, but I am guessing the owner was trying to cover a good chunk of the costs if he/she was to take the renting option, but with simmilar places renting for 1200 I doubt they had any luck.
These new buildings will never come close to having a price to rent ratio that is normal for a while because renters care less about the condition of the building than buyers.
Think of it like this:
Buying a new unit one would expect it to last for 40-50 years. Therefor spread the cost out over that period and it isnt so bad. But look at a 25 year old building expected to last only another 20 years and you will not be willing to pay anything near what you would for a new building.
But when renting you care more about location, size and ammenities than about the actual lifespan of the building. The reason this unit could never cover the mortgage is because it has to compete with 25 year old buildings with units the same size. Sure the place might not be quite as nice, but you wont find anyone willing to pay an extra 2K/month to have granite counters and stainless appliances.
Ah yes the O2, I watched it being build as I live right next to it, watching them putting it up I know I would not have bought anything in there, I am not in construction but I know enough to have witness all the cost cutting they did in the structural parts in order safe a buck or two, in ten years at the latest the fun will start.
Likewise, my neighbor knows the guy who build it indirectly and it seems not all is well there, the developer seems to struggle with selling the units and the investors aren’t too happy about this.
Considering the location this place really should have sold out quickly, and yet, almost six months after they finished building it it’s still quite empty.